Thursday, November 13, 2008

So why wasn’t it a problem on the way up?

The Bank rethinks importance of house prices

The Bank of England has often insisted that the relationship between house prices and consumer demand is tenuous. But now it appears to be engaged in a sober reassessment of the significance of house prices for the economy and its role in consumption, pointing to its particular role as collateral for bank borrowings. The Bank noted that its own data showed that the level of mortgage equity withdrawal had fallen sharply. Moreover, it pointed out that household indebtedness – much of it related to housing – had increased sharply since the 1990s slump, hitting 170% of annual income in 2008. "Lower house prices reduce the amount of housing equity that homeowners can borrow against.” The Bank noted that a resumption of lending was critical to its forecasts of economic recovery.

Posted by little professor @ 09:19 AM (596 views)
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3 thoughts on “So why wasn’t it a problem on the way up?

  • But the Bank of England has always been targeting house prices – this can be seen in their voting histories relative to inflation and house prices.

    It should be pretty obvious to those commentators at the bottom of the article that the MPC chasing house price inflation is exactly what has got us into this mess, and professing to chase them even more now is certainly not the way through this.

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  • Interesting now house prices are falling everyone started refering to RPI which includes house prices not CPI which doesn’t.

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  • It is always very risky to borrow against the equity in your house. Yet the banks where in many cases keener than the borrowers. The surprise that people expressed when they were told how much they could borrow is legendary

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